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All Contents © 2018The Kiplinger Washington Editors
By James Brumley
| July 11, 2017
The dust is settling after a slew of M&A activity. The big shake-up came courtesy of Amazon.com, Inc. (AMZN), which announced a few weeks ago that it is getting into the grocery game via its acquisition of Whole Foods Market, Inc. (WFM). That was followed up by several buyouts, though the tie-up of television-shopping icons HSN, Inc. (HSNI) and Liberty Interactive QVC Group (QVCA, QVCB) appears to be a direct response to combat Amazon’s growing threat to both.
It’s pretty much official: Amazon is the king of commerce, and will be darn tough to dethrone.
On the flipside, never say never. There was a point in the late 1960s that Sears Holdings Corp (SHLD) was the world’s biggest retailer, and now it’s in shambles. Granted, Sears was somewhat mismanaged, but it was being lapped by competitors left and right long before Eddie Lampert got involved and steered it off course.
With that as the backdrop, though it’s tough to imagine it ever happening, here’s a look at some mergers and acquisitions that could — if managed well — create some trouble for Amazon.
Yes, some of them seem a little too outlandish to even entertain the idea, but sometimes the most fruitful M&A comes from thinking outside the box. Meanwhile, some of these potential teams are well within the realm of reality, and are worth watching for signs of smoke.
Prices and data are from the original InvestorPlace story published on July 10, 2017.
This slide show is from InvestorPlace, not the Kiplinger editorial staff.
Credit has to be given where it’s due. Wal-Mart Stores Inc. (WMT) has spent a ton of time and money to win back some of the business it has lost to online shopping giant Amazon. Not only is Walmart in the midst of deploying $2 billion worth of investment in its e-commerce presence, it also recently closed on the purchase of online-retailer Jet.com.
It’s working, too. Last quarter’s online revenue was up 63% year-over-year.
Try as it might though, neither Walmart nor Jet is a first-choice venue for internet shoppers. Amazon remains the go-to destination for most consumers looking to find something, or find nothing in particular.
It’s too bad, too, as Walmart (now that it sells third-party goods online) can probably offer the same diverse selection Amazon does. It’s just not a name people associate with internet shopping.
You know what e-commerce name does turn heads, though? eBay Inc. (EBAY). It just doesn’t have the breadth of depth of merchandise Amazon does. If the two could muster the guts to move further down the M&A scale — combining the eBay name and Walmart’s purchasing power — Amazon would have good reason to worry.
Again, credit has to be given where it’s due. Struggling retailer Target Corporation (TGT) has tried to wade deeper into the grocery business, aiming to win back customers lost to Walmart.
It hasn’t gone well.
As managing director of GlobalData Retail Neil Saunders bluntly put it earlier in the year, “Grocery doesn’t work for Target like it should.”
Simultaneously, Kroger — arguably the most vulnerable name to Amazon’s recent entry into the grocery business — has also dabbled in superstores, selling home goods, clothing and even some furniture under the same roofs it sells fruit and meat. Kroger patrons’ response to non-food merchandise has been more or less as lackluster as Target’s customers’ interest in its expanded grocery aisles: not much.
Both organizations have well-oiled operations and enough scale to achieve some serious buying power though. What if each of these names could team up and help the other get over their lingering humps? Indeed, what if they could help one another sell each other’s goods?
Target just got into next-day delivery, and Kroger has launched curbside pickup akin to Amazon’s pilot grocery pickup program.
It’s one of the less likely mergers and acquisitions we’ll ever see, but if the two organizations could help each other fulfill orders in more markets, it could be a match made in heaven.
After Amazon announced the buyout of Whole Foods and a whole slew of onlookers suggested it may prod Alibaba Group Holding (BABA) into acquiring Kroger, Alibaba CEO Jack Ma made a point of saying it wasn’t going to happen.
Instead, Alibaba’s interest in the United States was exporting more U.S. made goods into eastern Asia, where consumers are hungry for western-made goods.
Things change, though, and it’s not like Ma would actually telegraph his plans to any potential competition. Indeed, considering Alibaba is toying with everything from driverless cars to cloud computing, it’s laying the foundation for a lot of weapons it could use against Amazon.
That will not only keep Amazon at bay in China, but should Ma decide to set up shop in the United States, it could steal Amazon’s Whole Foods and Fresh thunder by doing something even bigger with Kroger.
As rough as the advent of Amazon has been on Walmart, it has been even rougher on electronics retailer Best Buy Co Inc. (BBY). Indeed, it was Best Buy’s suffering at the hands of Amazon that gave rise to a new term: “showrooming.” Consumers would visit Best Buy stores to take an in-person look at electronics, and then visit Amazon.com to buy it.
And now, Amazon reportedly is going after Best Buy via its own “Geek Squad”-esque service.
Although showrooming is at least a little less evident at Walmart’s stores, electronics are still the retailer’s biggest single non-grocery department, and it has suffered alongside Best Buy on that front. See, 16% of Wal-Mart’s revenue is driven by electronics, and 20% if you count video games in that mix.
Things are changing for both organizations. Walmart is, by design, remodeling its electronics departments to look an awful lot like Best Buy, and Best Buy is starting to turn things around, having finally figured out how to compete with Amazon. Last quarter’s online sales were up 22.5%.
The two companies are on the verge of beating Amazon in an arena where it’s a fierce competitor, and together they may finally be able to beat the giant at its own game.
It has been suggested before but merits repeating now: Netflix, Inc. (NFLX) is going to struggle to make any money because it’s selling video content, of which there’s a plethora available elsewhere. Some of that other digital video content is cheaper than Netflix too, if not free.
The trick is leveraging that content as a marketing tool, just as Amazon has. Prime members gain access to Amazon’s library of digital content, and once a consumer is in the Prime fold, it becomes infinitely easier to induce them to make a purchase.
In other words, Netflix doesn’t sell anything other than access to video, but the real value to video is using it to draw a crowd, then monetize them in other ways.
Enter, Facebook Inc. (FB), a company that’s starting a more serious video effort. It recently inked deals with Vox Media and BuzzFeed to create several half-hour shows to be aired online. If that goes over, it would only make sense for Facebook to up the ante. It could try to do so on its own, or it could just buy the most proven name in the business.
The kicker: Facebook has a lot more dedicated users than Netflix has subscribers, and could easily convert a bunch of them into paying video customers. Netflix has to fight tooth and nail to garner its new members.
It seems like a crazy buyout idea at first, but a Facebook/Netflix combo could serve as a very potent distraction, keeping shoppers’ minds off of Amazon altogether.
OK, let’s not overstate the opportunity here. Sears teaming up with Home Depot Inc. (HD) isn’t one of those mergers and acquisitions and acquisitions that could pull the rug out from underneath Amazon; there’s not a lot of overlap between what the two retailers sell and what Amazon sells.
In terms of tools and home and garden, though — and appliances — at least the pairing could prevent Amazon from moving any deeper into that category.
Plus, there’s the obvious connection between Sears’ now-former Craftsman brand and the fact Home Depot is a huge tool venue. In fact, the buyer of the brand name, Stanley Black & Decker, Inc. (SWK), is already a key vendor for Home Depot, while the psychological link between Craftsman and Sears is palpable. Home Depot might be able to leverage that.
The other side of the coin: Home Depot is anything but a clothing retailer, and would have to figure out how to get out of that business, keep the hardlines and white goods business, keep the best real estate and cull the dead weight.
Still, it’s a curious possibility.
Add the union of Facebook and eBay to the list of mergers and acquisitions that Amazon would prefer not to happen.
There are two end-results such a merger would drive.
One of them is the addition of more physical goods that are easy to purchase via Facebook. A closer look at all its ads reveals many of them are for digital goods, or links to other websites that are simply trying to generate traffic. If Facebook and eBay could set up an arrangement that connects buyers and sellers of actual items (Facebook provides the traffic, and eBay provides the e-commerce platform), that could create a headwind for the e-commerce giant.
The second result isn’t as obvious, but perhaps even more important. That is, combining Facebook’s marketing knowhow with eBay’s merchandise — and some of its own online-marketing reach — the duo could start to rob some of Amazon’s third-party advertising business.
Remember, eBay has gotten pretty good at advertising its goods on other sites, and though Amazon’s header bidding platform is already turning heads in that it provides much-needed alternatives to Google, Facebook’s header-bidding solution is arguably even more potent simply because Facebook is generally the centerpiece and most-visited venue for all of a user’s devices.
Facebook knows you very well (better than Amazon, to be sure) and could easily tap that knowledge to sell you more physical merchandise.
It sound a little odd at first to throw food-delivery outfit GrubHub Inc. (GRUB) and Walmart into the mix of mergers and acquisitions that could cause trouble for Amazon, but think about it beyond food.
GrubHub has already developed a network of super-fast delivery networks. If it could take the same platform and know-how and plug it into Walmart’s lineup of in-store merchandise, the duo could nip Amazon’s same-day delivery business in the bud.
After all, Walmart’s warehouses — its stores — are much more pervasive than Amazon’s are.
This article is from James Brumley of InvestorPlace. As of this writing, he held none of the aforementioned securities.
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